Comments Re: Proposed .Biz, .Info, and .Org gTLD Registry Agreements

["Phil Corwin" <pcorwin@xxxxxxxxxxxxxxxxxx>]

By E-Mail

 

 

 
August 28, 2006

 

Board of Directors

Internet Corporation for Assigned Names and Numbers (ICANN)

4676 Admiralty Way, Suite 330 
Marina del Rey, CA 90292-6601

 

Re: Proposed .Biz, .Info, and .Org gTLD Registry Agreements

 

Dear Members of the ICANN Board:

 

This comment letter is submitted by the Internet Traffic Association
(INTRAS) in regard to the proposed .BIZ, .INFO, and .ORG generic top
level domain (GTLD) registry agreements posted for public comment by
ICANN on July 28, 2006. INTRAS is a new, not-for-profit trade
association which is currently in formation and will commence formal
operations shortly. INTRAS' membership will be composed of individuals
and companies that own, buy, sell, resell, host and manage Internet
traffic emanating from search engines, domain names and Internet links.
INTRAS' mission is to promote the values and benefits of Internet
traffic, including the value of purchasing direct navigation traffic, to
the press, advertisers, and governmental authorities on a global basis.
INTRAS stands for Internet prosperity and entrepreneurship and for
fairness among regulators and in the dispute resolution process,
taxation, and treatment under other relevant laws, regulations, and
agreements in the U.S. and other nations. INTRAS is being established to
provide a unified voice for a membership with common interests and a
diverse collection of experience in the Internet traffic marketplace.

 

General Position

 

Due to the potential for the proposed agreements referenced above to
sanction fundamental and highly negative changes in the operations of
registry operators, INTRAS' founding directors are taking this unusual
step of filing comments in advance of our Association's formal
commencement of operations.

 

INTRAS believes that consideration of the proposed agreements is
premature and that the accelerated comment and decision process under
which ICANN seeks to make a final decision on this matter fails to allow
the affected Internet community sufficient time to consider the broad
and fundamental changes to Internet governance that will result from
adoption of the proposed agreements. In particular, INTRAS is strongly
opposed to the provisions of the proposed agreements that allow for
their perpetual renewal under almost any circumstance, and that not only
remove price caps on domain name registrations but allow registry
operators to, for the first time, implement tiered pricing on domain
names. Registry operation is a natural monopoly and the only means by
which to curb potential abuses of that monopoly is for ICANN to exercise
a strong and continuing oversight role over registry operators and to
allow for appropriate marketplace testing at the time of an agreement's
renewal. Perpetual renewal as proposed in these agreements deprives
ICANN of any meaningful control over the service quality or conduct of
registry operators and makes a mockery of the potential discipline of
arbitration or litigation concerning fundamental and material breaches
of the registry agreements. Unrestrained pricing power, especially
tiered domain name pricing, would effect a fundamental alteration of the
role of registry operators from technical providers of ministerial
services to unrestrained and unelected taxing authorities with the
potential to extract extortionate and parasitic rents from entrepreneurs
whose work and capital have built successful websites and associated
businesses. Tiered pricing also creates a dangerous potential conflict
between the power of registry operators and the intellectual property
rights of domain name owners in regard to websites whose names
constitute registered and valuable trademarks under the laws of the
United States and other jurisdictions. INTRAS believes that there is
virtually no support in the broad Internet community for such
fundamental alteration in the powers and roles of registry operators and
that the substance and timing of these proposals is directly contrary to
the "bottom up" consensus Internet governance process that ICANN is
charged with implementing. These proposed agreements threaten the free
and unfettered flow of commerce and ideas on the Internet. Adoption of
these proposed agreements by ICANN's Board at its upcoming September
13th meeting would further undermine support for ICANN's policies and
procedures among major segments of the Internet community and would
therefore be detrimental to efforts to assure that the long-term
governance of the domain name system (DNS) remains centered within ICANN
rather than in some new multinational entity subject to politicization.


 

INTRAS therefore strongly opposes finalization of the proposed registry
agreements at this time. INTRAS urges the ICANN Board to immediately
withdraw these agreements and to republish them for comment only at an
appropriate time after the Internet community has been afforded
sufficient opportunity to fully consider their ramifications. When these
proposed agreements are republished INTRAS urges that:

*        Perpetual renewal be replaced by a renewal process that affords
ICANN sufficient power to discipline registry operators who have engaged
in fundamental and material breaches, and that allows for vigorous
marketplace testing of the service quality, conduct, and pricing regimes
of existing operators through a competitive re-bid process.

*        Meaningful controls on registration price increases during the
term of the agreements be incorporated within the agreements.

*        The revised agreements put out for public comment should
specifically forbid differential pricing for domain names based upon the
revenues or traffic of any domain site operator, the value of any
trademarked term incorporated within a domain name, or any other factor.

*        The notice provided by ICANN should be accompanied by detailed
explanations of and policy justifications for any proposed material
changes in agreement terms, and the comment procedure should afford the
broad Internet community sufficient time to fully consider their
implications and develop responsive commentary for submission to ICANN.

 

 

Discussion

 

 

Presumptive Renewal

 

The proposed agreements provide for presumptive renewal; that is, a
presumption in favor of letting the current registry operator continue
to operate the gTLD registry when the agreement comes up for renewal.
ITRAS has no objection to some reasonable presumption in favor of
letting incumbent registry operators continue that role provided that no
fundamental and material breach of its obligations has occurred during
the term of the expiring agreement as a result of its willful acts or
gross misconduct. However, under the proposed agreements registry
operators would not receive a mere presumption of renewal but a virtual
guarantee of perpetual renewal. 

 

The proposed agreements provide that a registry operator shall forfeit
its presumption in favor of  agreement renewal only if-

*       after committing one or more fundamental and material breaches
of its agreement, and
*       after receiving notice of its breach and failing to cure same,
and   
*       after being found by an arbitrator or court  to have been in
fundamental and material breach of its agreement
*       it fails to comply with the decision of the arbitrator or court.

 

These laughable provisions guarantee that the only registry operators
who lose the presumption in their favor are those which are brain dead,
sociopathic, or so grossly incompetent that they should never have been
awarded the contract in the first instance. They are akin to a criminal
statute that says a burglar shall be imprisoned if, after being caught
and convicted, he fails to say "I'll stop and won't do it again." They
are thoroughly insufficient to assure that registry operators act in the
interests of the broad Internet community. It is deeply troubling that
these provisions are also perpetual, in that each of the proposed
agreements contains an explicit statement that no future change in
Consensus Policies can in any way modify the terms and conditions for
its renewal or termination.

 

As noted, INTRAS has no objection to true presumptive renewal, as
opposed to the perpetual renewal the proposed agreements would
effectuate. Registry operation appears to be a natural monopoly, but as
with all monopolies it is antithetical to market competition and thereby
subject to abuse, and precautions must be implemented to deter bad
conduct. The only effective means for deterring the abuse of a natural
monopoly is pervasive regulation or periodic market testing, in
combination with vigorous antitrust enforcement. It is INTRAS'
preference  that market discipline be utilized to the maximum feasible
extent. But it is INTRAS' belief  that when a registry operator has
committed a fundamental and material breach of its obligations through
willful conduct or gross negligence there should be no longer be any
presumption in favor if its continued operation of that registry, and
that marketplace testing in such circumstances through competitive
re-bidding is the best potential means of ensuring that registry
operators maintain high service levels and reasonable pricing regimes.
Unfortunately, and to the long-term detriment of the broad Internet
community, the proposed agreements would provide for the awarding of
perpetual monopolies absent adequate regulatory or marketplace
constraints.

 

Lifting of Price Controls and Differential Pricing

 

A grant of perpetual monopoly is made exponentially more dangerous when
combined with unrestrained pricing power, yet that is exactly what ICANN
has proposed in these agreements. ICANN appears inextricably committed
to erecting one bad idea atop another in its rollout of revised gTLD
agreements. The "presumptive renewal" clause of the most recent .Net
registry agreement was replicated in the proposed .Com settlement, in
combination with an additional  grant of authority to VeriSign to raise
.Com registration fees up to a fixed maximum percentage in four of the
renewed agreement's term of six years absent any cost or service
improvement justification. The U.S. Department of Commerce has, to date,
prudently declined  to approve the proposed .Com settlement in response
to a sustained outcry from the Internet community, legislators, and
other parties of interest.  Yet, despite that hue and cry and the
Department of Commerce's corresponding reticence, ICANN now proposes to
leapfrog the .Com settlement with new agreements that remove pricing
constraints altogether - both in the aggregate and in the case of
individual domain names up for renewal. We cannot help but note that, in
its response to litigation brought against ICANN by the Coalition for
Internet Transparency (CFIT) in regard to the proposed .Com agreement,
ICANN argued that, "In a single supplier market, price caps are, if
anything, procompetitive". A priori, in the single supplier markets for
.Biz, .Info, and .Org domain names, a lack of price caps would be
anticompetitive - yet ICANN has now contradicted its position in the
CFIT litigation by proposing to sanction such anticompetitive actions by
registry operators. Though this proposal, ICANN is abdicating its
responsibility to promote competition and exercise effective oversight
over registry operators to protect the DNS. 

 

The proposed agreements evidence a fundamental misunderstanding of the
role of and appropriate rewards for registry operators. These are not
entrepreneurs who have invested capital and work into the realization of
new business ventures. Rather, they are entities that have won a bidding
process to provide ministerial services of a technical nature. Other
than the different technological requirements, there is little
difference between a registry operator and a government agency that
reviews applications for various forms of intellectual property and
maintains the records that confirm ownership of patents, trademarks and
copyrights. While INTRAS believes that an entity that has contracted to
provide such ministerial services deserves some reasonable return on the
time and capital it invests in such enterprise, it is our preference
that abuse of its monopoly position be restrained by some reasonable
combination of pricing restraints and marketplace re-testing. Such
controls are thoroughly absent from the proposed agreements. 

 

Even where a registry operator is empowered to exercise unbridled
pricing power, if it is constrained to charge the same price to each new
- and even more importantly, each renewing - domain name registrant,
monopoly abuse should be curbed to some degree by the fact that a price
rise for one will be a price rise for all, and therefore an increase
regarded universally as unjustified will trigger a strong and broad
outcry. Further, across-the-board increases for new and renewal
registrations will trigger competition from competing registry operators
who keep their own fees reasonable to attract new registrants.

 

Even these modest constraints are absent when, as ICANN's Chairman has
confirmed in the past week, the new agreements allow registry operators
to charge different fees for the renewal of different domain names. Such
arbitrary and unrestrained pricing power cannot be justified. It would
seem clear that a domain registry provides the same identical service to
each registered site within the gTLD it oversees, regardless of the
traffic the site receives or the success of the business it hosts. 

 

To the extent that any differential pricing implemented by a registry
operator is not justified by a material difference in the services it
provides to a registrant, such difference in pricing ceases to be a fee
for services rendered and becomes an arbitrary tax providing it with
unjustified enrichment. And we have little doubt as to what this tax
will be levied upon. It will be levied upon success. And its effect will
be to provide registry operators with an extortionate means to claim an
unjustified and parasitic share of monetary rewards flowing from the
hard labor and capital investment of others who have created successful
websites and associated businesses.

 

In 1819, United States Supreme Court Chief Justice John Marshall
declared, in the seminal case of McCulloch v. Maryland, that "the power
to tax involves the power to destroy". That statement remains true
nearly two centuries later. The power to tax is dangerous enough when
vested in an elected legislature beholden to an enfranchised citizenry;
it has deadly potential when granted to a perpetual monopoly. ICANN has
proposed in the pending agreements to provide perpetual registry
monopolists with an unrestricted power to tax the commerce developed by
any website within its domain. This provides registry operators with the
power to threaten the commercial destruction of any successful
enterprise using a domain name within its gTLD. If entrepreneurs should
develop a highly successful new search engine/encyclopedia at
allknowledge4U.info then by what right does the registry operator for
the .Info gTLD get to claim a quasi-equity share of that commercial
success by asking for a vastly inflated registration fee when that
domain name comes up for renewal? Why should the entrepreneurs who built
that business face the threat that, if they refuse to pay such
extortion, their domain name will be put up for auction and they will
have to bid to retain their site against third parties whose sole
motivation is to secure the rights to a valuable website for sale back
to them - or perhaps to their competitors?  Further, given that  ICANN
for the present remains subject to some oversight of the U.S. Department
of Commerce (DOC), we would have thought that ICANN would have taken
note that U.S. legislators have been in general and bipartisan agreement
that the Internet should not be subject to new forms of taxation, and
would consequently have refrained from proposing that registry operators
be permitted to tax the success of their registrants.

 

We take little comfort in recent reports that the Chairman of the ICANN
Board regards such extortionate pricing as unlikely to occur because it
would be "suicide" for a registry to do it. That view appears based upon
the view that perpetual monopolists will refrain from collusive conduct
that allows all to enjoy the unjust potential rewards of the exercise of
this taxing power. The ability to engage in such anti-competitive
conduct is enhanced by the uncertainty as to what antitrust regime could
be enforced against gTLD registries based in a variety of national
jurisdictions. Indeed, it is not even clear whether antitrust sanctions
could be brought against gTLD registry operators, who can be expected to
argue that their conduct has been authorized by their contractual
agreements with ICANN, which in turn has been imbued with sole authority
over the governance and conduct of the DNS. 

 

Nor are we comforted by the Chairman's reported view that renewing
registrants could at least temporarily protect themselves from abusive
increases because a six-month notice period would afford them the
opportunity to renew at the old rate for a ten year period. The
commercial Internet itself has just entered its second decade of
existence, and ICANN should be striving to establish fair and sound
policies that can persist for many decades to come. Differential domain
name renewal pricing is unjustifiable and potentially destructive
taxation regardless of when it takes effect. Once such pricing is
implemented, regardless of the breadth of subsequent opposition from the
broad Internet community, it cannot be rescinded since the agreements
specifically state that Consensus Policies "shall not...prescribe or
limit the price of Registry Services".  There is no guarantee that the
six-month notice period and ten year renewal right will carry over to
future iterations of these registry agreements. We also question whether
ICANN has retained any ability to intervene against abuse of this
differential pricing power - that is, since the agreements explicitly
remove all pricing constraints and ICANN has already conceded that they
allow such differential pricing, then the exercise of that power could
not constitute a fundamental and material breach of the agreement.
Finally, we are disquieted that ICANN has a direct financial stake in
and will reap financial benefit from a registry's exercise of this
confiscatory taxation authority in that, commencing in 2009, ICANN will
reap additional transaction fees to the extent that a gTLD's average
domain name registration price exceeds $3.01.

 

In addition to failing to present any convincing policy justification
for this drastic and fundamental change, much less to discuss whether
potential abuse can be effectively constrained by antitrust authorities
or by ICANN itself, ICANN has also failed to give adequate consideration
to the potential conflict between differential pricing and trademark
law. There would be a hue and cry against any governmental agency
charged with registering various forms of intellectual property if it
proposed to levy greater charges for renewal of a valuable patent or
widely recognized trademark for the performance of its ministerial
function. Yet this proposal would allow each gTLD to levy an inflated
renewal fee against every company which has registered its own
trademarked name, and the trademarked names of its most valuable
products, across all gTLDs in an attempt to safeguard those valuable
names and its own reputation. It can certainly be expected that registry
operators will look toward domain names consisting of valuable
trademarks as a primary means of enriching themselves under a
differential pricing regime, and it is by no means clear that a
registrant can prevent the sale of its trademarked domain name to a
third party if it refuses to ante up an extortionate renewal fee.

 

While differential pricing would only be allowed under these proposed
agreements for what are, at present, secondary gTLDs, we have little
doubt that their approval would pave their way for incorporation of the
same dangerous concept in the .Net and .Com agreements. Just as these
proposals build upon the controversial and yet unapproved .Com
settlement, as it in turn built upon the revised .Net agreement, we
would fully expect that if these agreements are adopted VeriSign will,
after some interval, will demand "parity" and seek to incorporate the
same rapacious pricing power in the .Net and .Com agreements so that it
may be levied against the most valuable pieces of Internet real estate.

 

While differential renewal pricing has dangerous potential in the
commercial sector, its implications are equally troubling for the future
of the Internet as a forum for the free expression of ideas and exchange
of knowledge, an ideal that underlies the success of many websites. Many
of INTRAS' founding and prospective members defended ICANN's continued
governance of the DNS against proposals circulating in the UN's World
Summit on the Information Society (WSIS) process that these duties be
transferred to a multinational, politicized entity affiliated with the
UN. They continue to hold that view despite grave disappointment over
the proposed .Com settlement and these proposed registry agreements. Yet
the UN is going ahead with its Internet Governance Forum (IGF) and there
is no assurance that future U.S. administrations will remain as
steadfast in their defense of ICANN. Therefore, any proposed fundamental
change in Internet governance policies must also be considered in light
of its potential for abuse in a more politicized governance regime. In
that context, the power of taxation to destroy can become a power to
suppress popular websites that facilitate the dissemination of  facts
and the discussion of ideas that threaten various government regimes,
facilitated by the bringing to bear of political pressure on gTLD
registry operators to suppress such websites through the levying of
renewal fees they cannot possibly pay.

 

The potential politicization of Internet governance also raises another
disquieting possibility. Once gTLD registry operators begin to implement
differential renewal pricing and reap its unjust rewards, the treasuries
they amass may well become regarded as convenient "slush funds" to be
used in part for whatever subsidies or other purposes are deemed
desirable by the prevailing multinational political consensus in ICANN's
successor. Taxes collected yield monies to be spent, and providing gTLDs
with a tax-like power can be expected to provide a new monetary
incentive to those who wish to transfer DNS governance away from ICANN.

 

For all of the reasons outlined above, we believe that the proposal to
grant differential pricing  powers to registry operators would result in
a fundamental and undesirable alteration in the basic operation of the
Internet. ICANN is proposing to embark down a slippery and very steep
slope that, in our view, leads only to trouble for all those who have
risked their capital and expended their energies to create the Internet
we know and enjoy today. ICANN does not oversee the DNS by divine right,
and the Internet should not be treated as some newly discovered
continent subject to division into fiefdoms to be awarded in perpetuity
to loyal entities imbued with unrestrained taxing powers.

 

Procedural Concerns

 

The current .Biz and .Info agreements do not expire until 2007, and the
.Org agreement does not expire until 2009. Yet ICANN has proposed to
effect fundamental and permanent changes in the operation of these
registries and of the Internet itself through a notice and comment
procedure commenced at the beginning of the summer vacation season in
the northern hemisphere, and has afforded commentators a scant thirty
days in which to ponder the long term consequences before they file
their comments in advance of potential Board action on September 13th.
This fast-track procedure is even more troubling given that the most
dangerous potential of the new agreements, that of differential pricing
for domain name renewals, has only become apparent in the last few days
in the wake of published reports of confirmation of this ability by
ICANN's Board Chairman. 

 

Further, ICANN's attempt to rush to ratify these agreements before the
Internet community can fully grasp their implications is "putting the
cart before the horse" in light of other pending developments. The DOC
is considering whether it should renew its Memorandum of Understanding
(MOU) with ICANN this fall, and has asked for public comment regarding
ICANN's agreements with registries. We believe that any proposed changes
in the registry agreements should await consideration until after DOC
has taken final action on the MOU.

 

In addition, ICANN's Generic Names Supporting Organization (GNSO) has
established a Task Force to review certain contract issues related to
the renewal of registry agreements, including automatic renewal and
price caps, as well as whether registry operators afforded greater
market pricing  power should remit higher per-name fees to ICANN.
ICANN's rush to implement fundamental changes of these key agreement
terms in advance of delivery and consideration of that Task Force's
report undercuts its mission and the very bottom-up policymaking process
that is supposed to govern ICANN actions. ICANN's attempt to fast-track
adoption of the proposed agreements raises serious issues of fundamental
fairness, given that the agreements themselves would bar any ability for
future Consensus Policies to change almost all of the key issues being
reviewed by the GNSO Task Force.

 

Conclusion

 

For all of the reasons stated above, INTRAS is strongly opposed to the
proposed registry agreements. INTRAS urges ICANN to withdraw the
proposed agreements until the DOC has taken final action on MOU renewal
and the GNSO Task Force has issued its report on registry agreement
contract renewals. 

 

When the proposed agreements are reissued at an appropriate time for
public comment and review they should:

*       Contain a mere presumption in favor of renewal for a registry
operator that has not engaged in a fundamental and material breach
through willful misconduct or gross negligence, rather than a virtual
guarantee of perpetual renewal.
*       Contain effective restraints on unreasonable registration fee
increases, and should absolutely bar any differential pricing of domain
name renewals.
*       Should incorporate to the maximum extent feasible marketplace
discipline of pricing and performance through competitive re-bid
procedures.
*       Be accompanied by detailed explanations of and policy
justifications for any proposed material changes in agreement terms.
*       Should afford the broad Internet community sufficient time to
fully consider their implications and develop responsive commentary for
submission to ICANN.

 

ICANN's actions over the past year have severely undercut its support
among important segments of the Internet community  and have led many to
question whether it retains any real commitment to a transparent,
bottom-up, and consensus driven policy development process. ICANN can
only begin to restore confidence in its ability to responsibly manage
the DNS on behalf of the Internet community if it withdraws the proposed
agreements and goes back to the drawing board.

 

Sincerely,

 

Bob Martin 

CEO, Internet REIT, Inc.

Founding Member, INTRAS

 

Frank Schilling

Managing Director, Name Administration, Inc.

Founding Member, INTRAS

 

Philip S. Corwin 

Partner, Butera & Andrews

Counsel   

 

   

 

 

 

 

 

Philip S. Corwin 
Partner 
Butera & Andrews 
1301 Pennsylvania Ave., NW 
Suite 500 
Washington, DC 20004 
202-347-6875 (voice)/-6876 (fax) 

"Luck is the residue of design." -- Branch Rickey